Working Paper: NBER ID: w22284
Authors: Alp Simsek; Muhamet Yildiz
Abstract: We propose a tractable model of bargaining with optimism. The distinguishing feature of our model is that the bargaining power is durable and changes only due to important events such as elections. Players know their current bargaining powers, but they can be optimistic that events will shift the bargaining power in their favor. We define congruence (in political negotiations, political capital) as the extent to which a party's current bargaining power translates into its expected payoff from bargaining. We show that durability increases congruence and plays a central role in understanding bargaining delays, as well as the finer bargaining details in political negotiations. Optimistic players delay the agreement if durability is expected to increase in the future. The applications of this durability effect include deadline and election effects, by which upcoming deadlines or elections lead to ex-ante gridlock. In political negotiations, political capital is highest in the immediate aftermath of the election, but it decreases as the next election approaches.
Keywords: Bargaining; Durability; Political Capital; Deadlines; Elections
JEL Codes: C73; C78; D74; D78
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| durability of bargaining power (J52) | optimism (D84) |
| optimism (D84) | timing of agreements (L14) |
| durability of bargaining power (J52) | timing of agreements (L14) |
| elections (K16) | delays in agreement (J52) |
| elections (K16) | congruence and agreement (C52) |
| higher durability (L68) | increased delays in reaching agreements (J52) |
| deadlines (G14) | delays in agreement (J52) |